Your Tax Return is Being Audited: What to Expect

September 25, 2015 — Filed under: Tax Strategies

They Pulled Your Return for Review

I think it is safe to say regardless how good of a record keeper you are, when your tax return is pulled for an audit it is scary and intimidating.

There are different kinds of audits. There is something called a correspondence audit and there is an actual audit. When your return has been pulled for a correspondence audit, you will receive a letter disallowing expenses or deductions claimed on your return and given a deadline to substantiate your expenses and/or deductions claimed. If a taxpayer doesn’t respond by the deadline, the expense or deduction that was being questioned will be disallowed and the additional assessment will be made. If the individual responds timely with the applicable documents it generally works in the taxpayers favor. The correspondence audit is a check and balance for the IRS. Now that everything is done electronically, when your return is being processed, if the system doesn’t reconcile the expense or deduction claimed, it can flag your return for review. As long as the deductions are legitimate and you have documentation, you will be able to prevent the assessment of additional tax.

On the other hand when you receive Form 4549, you are going through an actual audit with an Examining Agent. This is intimidating. As long as you claimed legitimate expenses and you have the documentation to substantiate the expense, you should be fine. A letter and document request will be forwarded to the tax payer from the Examining Agent detailing the year or years under review and the documents they need. It is important that an individual has a Tax Attorney, Enrolled Agent or CPA representing them through an audit, a professional who is well versed in the tax code. In the event something was claimed that shouldn’t have been, it is okay, we are human and mistakes happen. If an expense or deduction isn’t allowed, an assessment will be made if the disallowance creates a tax due.

If you have been assessed through an audit and should not have been, you can request an audit reconsideration. The audit reconsideration will allow you to present your case and documentation to substantiate the original expenses or deductions claimed. If everything is in order, the assessment will be reversed.

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